Who REALLY Pays Taxes

As US capitalism suffers from a crisis now in its fifth year with no end in sight, the Republican presidential candidates and Obama endlessly repeat cheerleading for the system as if it were, as usual, beyond question or criticism. Obama's State of the Union Speech at least found campaign fodder in referring to income inequality.

He tried to make political use of what the Occupy movement inserted onto the mass public consciousness so powerfully last autumn.

Obama even suggested a 30 percent minimum tax on those earning $1 million or more annually.The details of that suggestion remain murky with little chance that the kinds of Congresses recently elected would pass it. In any case, Obama's suggested 30 percent minimum tax would still remain far, far below the much higher individual income tax rates that the richest Americans had to pay in the 1940s, 1950s, 1960s and 1970s.

Immediately after the speech, right-wing economists, journalists, and other spokespeople for the 1 percent swung into action to attack. They clearly want to keep the public's awareness and public discussion away from the income and tax issues that the Occupy movement made so important and urgent. They resent the president for even raising issues of fairness and taxation, however modestly.

That usually happens when taxes and justice get discussed in the same public conversation. Stretching the truth gives way to more or less gross lying, and never more so than during election campaigns.

So, a minimal fact check on federal taxes in the US might help folks avoid being easily misled.

The table below summarizes the last 75 years to show what happened to the three most important tax revenues collected by Washington (accounting for over 90 percent of total tax revenues now):

Here are some key truths revealed by these statistics gathered and published by the US government:

After the Great Depression and during World War II, the US government collected relatively much more from corporations than from individuals. Then, too, we were also closely allied with the USSR. How times change! To think that Washington placed heavier taxes on corporations than on individuals! Clearly, corporations would prefer we forget or never encounter that past reality lest it suggest something for consideration now.

After the War, corporations went to work to change the federal tax system. Not only did they succeed in shifting the tax burden from corporations to individuals already by 1960, but that shifting has gone on steadily to the present.

Consider also that while the individual income tax is partly progressive (the higher your income, the higher the percentage you pay), since 1980, it has become ever less important for Washington's total tax revenues than the faster rising regressive Social Security and Medicare tax systems (the higher your income, the lower the percentage you pay).

The table above also helps to show the falseness of arguments frequently made by right-wing economists, politicians and media representatives.

One such argument runs roughly as follows: "Half of Americans pay no income taxes, while the richest 5 percent of taxpayers pay over half of Washington's income taxes." First of all, the vast majority of those Americans who do not pay income taxes do pay Social Security and Medicare taxes. As the Washington Post made clear (September 23, 2011), using data for 2011, of the 46 percent of US households who will not be paying federal income tax for 2011, the vast majority will be paying Social Security and Medicare taxes. The truth is that only 18 percent of US households will pay neither income tax nor Social Security and Medicare taxes. All but 1 percent of those who pay no taxes to Washington are either elderly or else have household incomes under $20,000.

Another such argument runs roughly as follows: "The richest 5 percent of income receivers in the US pay over half of all of Washington's income tax receipts." First of all, those same people pay a tiny percentage of Washington's Social Security and Medicare receipts. That is simply because the richest Americans earn the largest portion of their income from sources other than wages and salaries - such as interest, rents, dividends and capital gains. Incomes from such other sources do not have to pay Social Security or Medicare taxes. Since Washington's Social Security and Medicare tax receipts are now as large or larger than its individual income tax receipts, any honest assessment of what the richest Americans pay cannot exclude counting Social Security and Medicare taxes paid disproportionately by the bottom 99 percent - just what most of the right-wing analyses routinely do.

One way to cut through the misinformation around taxes created by the right is to see what happened to the distribution of incomes among Americans over recent years. Did the US federal tax system hurt the top 1 percent and help the remaining 99 percent; does it operate "unfairly" as they claim? An answer emerges from the best professional statistical work yet done on the US income distribution: that of Professors Piketty and Saez (widely available on the Internet). Their work covers 1993 to 2007 (before the current crisis hit). They found that the average annual growth in US real incomes over those years was 2.2 percent. In contrast, the real annual income growth of the incomes of the richest 1 percent was 5.9 percent. The real annual income growth of the other 99 percent of the US was 1.3 percent.

The US federal tax system that right wingers portray as unfair and burdensome to the richest Americans allowed them for the last two decades to gather still greater income than everyone else. The US federal tax system enabled greater inequality. And the same results apply to the US distribution of wealth. No wonder the right resents, opposes and seeks to silence those who suggest even modest changes in a tax system so convenient for the richest.

Richard D. Wolff is Professor of Economics Emeritus, University of Massachusetts, Amherst where he taught economics from 1973 to 2008. He is currently a Visiting Professor in the Graduate Program in International Affairs of the New School University, New York City. He also teaches classes regularly at the Brecht Forum in Manhattan. Earlier he taught economics at Yale University (1967-1969) and at the City College of the City University of New York (1969-1973). In 1994, he was a Visiting Professor of Economics at the University of Paris (France), I (Sorbonne). His work is available at rdwolff.com and at democracyatwork.info.

Who REALLY Pays Taxes

As US capitalism suffers from a crisis now in its fifth year with no end in sight, the Republican presidential candidates and Obama endlessly repeat cheerleading for the system as if it were, as usual, beyond question or criticism. Obama's State of the Union Speech at least found campaign fodder in referring to income inequality.

He tried to make political use of what the Occupy movement inserted onto the mass public consciousness so powerfully last autumn.

Obama even suggested a 30 percent minimum tax on those earning $1 million or more annually.The details of that suggestion remain murky with little chance that the kinds of Congresses recently elected would pass it. In any case, Obama's suggested 30 percent minimum tax would still remain far, far below the much higher individual income tax rates that the richest Americans had to pay in the 1940s, 1950s, 1960s and 1970s.

Immediately after the speech, right-wing economists, journalists, and other spokespeople for the 1 percent swung into action to attack. They clearly want to keep the public's awareness and public discussion away from the income and tax issues that the Occupy movement made so important and urgent. They resent the president for even raising issues of fairness and taxation, however modestly.

That usually happens when taxes and justice get discussed in the same public conversation. Stretching the truth gives way to more or less gross lying, and never more so than during election campaigns.

So, a minimal fact check on federal taxes in the US might help folks avoid being easily misled.

The table below summarizes the last 75 years to show what happened to the three most important tax revenues collected by Washington (accounting for over 90 percent of total tax revenues now):

Here are some key truths revealed by these statistics gathered and published by the US government:

After the Great Depression and during World War II, the US government collected relatively much more from corporations than from individuals. Then, too, we were also closely allied with the USSR. How times change! To think that Washington placed heavier taxes on corporations than on individuals! Clearly, corporations would prefer we forget or never encounter that past reality lest it suggest something for consideration now.

After the War, corporations went to work to change the federal tax system. Not only did they succeed in shifting the tax burden from corporations to individuals already by 1960, but that shifting has gone on steadily to the present.

Consider also that while the individual income tax is partly progressive (the higher your income, the higher the percentage you pay), since 1980, it has become ever less important for Washington's total tax revenues than the faster rising regressive Social Security and Medicare tax systems (the higher your income, the lower the percentage you pay).

The table above also helps to show the falseness of arguments frequently made by right-wing economists, politicians and media representatives.

One such argument runs roughly as follows: "Half of Americans pay no income taxes, while the richest 5 percent of taxpayers pay over half of Washington's income taxes." First of all, the vast majority of those Americans who do not pay income taxes do pay Social Security and Medicare taxes. As the Washington Post made clear (September 23, 2011), using data for 2011, of the 46 percent of US households who will not be paying federal income tax for 2011, the vast majority will be paying Social Security and Medicare taxes. The truth is that only 18 percent of US households will pay neither income tax nor Social Security and Medicare taxes. All but 1 percent of those who pay no taxes to Washington are either elderly or else have household incomes under $20,000.

Another such argument runs roughly as follows: "The richest 5 percent of income receivers in the US pay over half of all of Washington's income tax receipts." First of all, those same people pay a tiny percentage of Washington's Social Security and Medicare receipts. That is simply because the richest Americans earn the largest portion of their income from sources other than wages and salaries - such as interest, rents, dividends and capital gains. Incomes from such other sources do not have to pay Social Security or Medicare taxes. Since Washington's Social Security and Medicare tax receipts are now as large or larger than its individual income tax receipts, any honest assessment of what the richest Americans pay cannot exclude counting Social Security and Medicare taxes paid disproportionately by the bottom 99 percent - just what most of the right-wing analyses routinely do.

One way to cut through the misinformation around taxes created by the right is to see what happened to the distribution of incomes among Americans over recent years. Did the US federal tax system hurt the top 1 percent and help the remaining 99 percent; does it operate "unfairly" as they claim? An answer emerges from the best professional statistical work yet done on the US income distribution: that of Professors Piketty and Saez (widely available on the Internet). Their work covers 1993 to 2007 (before the current crisis hit). They found that the average annual growth in US real incomes over those years was 2.2 percent. In contrast, the real annual income growth of the incomes of the richest 1 percent was 5.9 percent. The real annual income growth of the other 99 percent of the US was 1.3 percent.

The US federal tax system that right wingers portray as unfair and burdensome to the richest Americans allowed them for the last two decades to gather still greater income than everyone else. The US federal tax system enabled greater inequality. And the same results apply to the US distribution of wealth. No wonder the right resents, opposes and seeks to silence those who suggest even modest changes in a tax system so convenient for the richest.

Richard D. Wolff is Professor of Economics Emeritus, University of Massachusetts, Amherst where he taught economics from 1973 to 2008. He is currently a Visiting Professor in the Graduate Program in International Affairs of the New School University, New York City. He also teaches classes regularly at the Brecht Forum in Manhattan. Earlier he taught economics at Yale University (1967-1969) and at the City College of the City University of New York (1969-1973). In 1994, he was a Visiting Professor of Economics at the University of Paris (France), I (Sorbonne). His work is available at rdwolff.com and at democracyatwork.info.